As A Food Company Seeks State Aid, Investments In Its Stock Benefit Some Close To The Circle Of Power

When a small Pennsylvania food company needed $10 million to expand into Connecticut, it hired a wealthy friend of Gov. John G. Rowland known for his ability to win state economic development aid.

The friend, Robert V. Matthews, impressed Pinnacle Foods Inc. with his clout. During a golf game one day, he had the governor call Pinnacle on a cell phone to express support for the company's plan to open a meat packing plant on property Matthews owned in New Haven.

But Matthews' exertions on behalf of Pinnacle weren't limited to golf outings at the Waterbury Country Club.

Shortly before two state agencies began considering loans for Pinnacle in the fall of 2000, Matthews and an associate helped close relatives of key officials at those agencies invest $10,000 apiece in the privately held company. The value of the investments, made in August 2000, skyrocketed after Pinnacle went public the following year.

One of those who bought stock was the wife of Arthur Diedrick, chairman of the Connecticut Development Authority, where Matthews sought millions in loans for Pinnacle. Another was Kenneth Rigney, a state trooper then on the governor's security detail, whose brother, Robert, was the state economic development official who oversaw Pinnacle's loan application.

Although he knew of his wife's investment, Diedrick did not report it on his annual statements of financial holdings to the State Ethics Commission in 2000 and 2001. Last week, after The Courant raised questions about it, Diedrick sent a letter to the ethics commission ``correcting'' his reports for those two years and blaming his wife for the failure to disclose the stock.

Neither Arthur nor Tara Diedrick would be interviewed for this story. Through a spokesman, Arthur Diedrick said that he disclosed the investment to his staff in 2000 when Pinnacle's application came in and personally played no role in reviewing it.

For his part, Robert Rigney, a director of business recruitment for the Department of Economic and Community Development, said he had no idea his brother had a $10,000 investment in Pinnacle during the time he was considering the application.

Details of the private stock purchases, revealed here for the first time, are partly a story of how overlapping personal and official relationships enriched a select few inside the circles of power. But more than that, they raise questions about whether some of the participants were acting out of personal interest or on behalf of state taxpayers.

On Friday, Rowland issued a statement saying he ``routinely calls company executives to urge them to locate their business in Connecticut.'' In response to questions by The Courant, his office also sent a letter to the state auditors asking for ``an evaluation of all dealings'' between Pinnacle and the two state development agencies.

Noting that ``immediate family members of officials of those agencies owned stock in Pinnacle,'' Rowland's legal counsel said the governor wants to ensure there were no conflicts of interest.

If the auditors do look into the Pinnacle affair, they will find a convoluted story with no happy ending in sight.

It took a disappointing turn for Matthews in early 2001, when state officials said they potentially could loan Pinnacle $2 million, less than what Matthews wanted. Before negotiations could go further, Pinnacle abandoned its Connecticut plans. The company had received an infusion of capital from a larger food company, and ultimately decided to stay in Pennsylvania.

Claiming that Pinnacle backed out before he could come up with the promised loans, Matthews sued the company for millions he said it owed him for his efforts. Pinnacle is fighting back, suggesting in court documents that Matthews violated ethics laws by soliciting state agencies for the loans without registering as a lobbyist.

Matthews declined to be interviewed for this story. His lawyer, Elizabeth Robbin of Hartford, said she is ``confident Bob Matthews didn't violate any laws or state ethics requirements.''

Meanwhile, Pinnacle's stock price rose to 10 times what Tara Diedrick and Kenneth Rigney had paid for it. Last April, a broker filed a form with securities regulators reporting that ``Arthur Hill Diedrick'' -- not Tara Diedrick -- intended to sell the stock, suggesting it had been transferred to the CDA chairman's control at some point.

In an interview, Rigney said he continues to hold his Pinnacle shares. The policeman-investor said his research suggests the stock will be worth even more some day.

``It's extremely promising,'' he said. ``They have the ability to corner the market on the processing that they want to do, and if they achieve that, it will be tremendous for this company.''

Making Sausage

Pinnacle Foods opened its doors in 1999 in Pottstown, Pa., with a big idea and little money.